DEFENSE-WIDE WORKING CAPITAL FUND
DEFENSE LOGISTICS AGENCY
FY 2002 AMENDED BUDGET SUBMISSION
DISTRIBUTION DEPOTS
FUNCTIONAL DESCRIPTION
The Defense Logistics Agency (DLA) Distribution Depots Activity Group is responsible for the
global distribution and warehousing of wholesale DoD weapon systems parts and other defense
related consumable items and reparables, as well as end items. In FY 2001, twenty-three
Defense Distribution Depots, strategically located throughout the world, received and issued
approximately 23 million lines and stored over 294 million cubic feet of material. The Defense
Distribution Depot network insures that America’s war fighters receive the best value in
distribution services by providing “around the clock - around the world” world-class service for
the least cost to the taxpayers. All items are typically prepared and shipped within one day of
receiving a shipping order.
CHANGES IN OPERATIONS
In FY 1998, plans were developed to reengineer DLA’s two Primary Distribution Sites (PDSs)
located at the Defense Distribution Depot San Joaquin California and at the Defense
Distribution Depot Susquehanna Pennsylvania. At both PDSs, the reengineering efforts
involved rewarehousing material from nearby facilities and eliminating duplicate functions.
These actions resulted in the reduction of more than 700 employees and a substantial increase in
productivity at the two sites.
Also, in FY 1998, DLA began the process of competing the first 3 of 16 depots with private
industry. The process follows federal policy for deciding whether to retain recurring,
commercial-like activities within the government or contract them out to a private sector source.
The goal of the program is to reduce operational costs through the competitive process and
through process reengineering. The first competition award, announced in November 1999,
resulted in the Defense Distribution Depot Columbus, OH retaining depot operations and
management in house. The next two competition awards, announced January 2000 for the
Defense Distribution Depot Barstow, CA and February 2000 for the Defense Distribution
Depot Warner Robins GA, resulted in both depots contracting out their operations and
management functions. The two contracts are for three years with one two-year option period.
These competitions will provide quality support and significant cost savings to the war fighters
in the years to come.
Six additional depots were announced for study in April 1999. To date, two additional
competition awards have been announced. Both depots, Distribution Depot Cherry Point, NC
and Distribution Depot Jacksonville, FL were awarded to private contractors. The remaining
four depots will be announced throughout the remainder of FY 2001 and FY 2002. This budget
1
includes a revision to our A-76 schedule. Studies that were scheduled to begin in FY 2000 are
now planned to begin in FY 2001, pending a review of execution. DLA plans to compete all
other CONUS depots, except the two sites scheduled for closure under Base Realignment and
Closure (BRAC). The two BRAC distribution depots, at Kelly AFB in San Antonio, TX, and
at McClellan AFB in Sacramento, CA, will close by July 2001. The distribution depot in San
Antonio was outsourced and has been operated by the private sector since 1998 and will end its
distribution status with the closure of Kelley Air Force Base. DLA will announce the two final
studies of the support functions at the Primary Distribution Sites (PDSs) in FY 2002. The
entire A-76 process ends in FY 2005.
The performance metrics for this activity group include unit costs for processing, storage and
reimbursable workloads and total costs for distribution services; these costs are to be
controlled/reduced through the use of competitive sourcing.
DLA has been able to make great strides in reducing the number of distribution depots through
mergers and BRAC Commission decisions in 1993 and 1995, going from 30 CONUS depots in
1992 to 18 CONUS depots by the end of 2001. Since distribution depot consolidation, three
depots have been established in the European and Pacific theatres (Pearl Harbor, Hawaii;
Yokosuka, Japan; and Germersheim, Germany) and one specialized distribution depot for
handling maps has been added.
Consistent with activity based costing techniques, in FY 2002 DLA will implement the Net
Landed Cost pricing mechanism at the Distribution Depots. The current discrete pricing
methodology does not reflect the varying levels of distribution services rendered. Customers
are not aware of the cost implications of specifying either routine, priority; special levels/value
of added services; or of the cost drivers of the varying materiel that DLA handles. The
continued use of average line item costs does not reflect the actual level of effort expended with
respect to individual items processed. Without this level of detail, precise costs cannot be
determined and subsequently used as a mechanism for developing competitive prices.
However, Net Landed Cost will provide our customers with visibility of their distribution costs
by commodity, customer, and transactions so that they may make more informed supply
decisions as well as develop more accurate surcharges. Net Landed Cost is the next generation
of discrete pricing to (1) fairly allocate costs to the level of services desired, (2) allocate costs to
the customer driving the costs, and (3) align costs more accurately.
To date, overall performance has improved while costs continue to decrease. Continuing
process efficiencies and steady drops in mission workload have led to significant reductions to
the distribution workforce. Endstrength will drop from 25,000 in FY 1992 to an estimated
8,783 in FY 2002, a reduction of 18,217 personnel, a 67 percent decrease. Personnel
reductions to date have been accomplished mainly through the use of Voluntary Separation
Incentive Pay (VSIP) and Voluntary Early Retirement Authority (VERA). However,
involuntary Reductions-in-Force (RIFs) were required in FY 2000 and more will be required in
FY 2001/2002 to maintain the appropriate balance of workforce to workload and as a result of
competition awards.
2
PERSONNEL PROFILE:
Civilian End Strength
Civilian Full Time Equivalents (FTEs)
Military End Strength
FY 2000
FY 2001
9,214
10,210
135
9,145
9,305
177
FY 2002
8,783
8,954
178
BUDGET HIGHLIGHTS:
WORKLOAD:
Lines Received and Shipped:
Lines processed (either received or shipped) are the basic work count. Workload is budgeted to
decline 4.3 percent in FY 2002. This continues a persistent trend, as changes in logistics
methods reduce distribution depot workload. Reengineering initiatives, such as Premium
Service and Virtual Prime Vendor, and a general decline in customer demands will continue this
trend into the foreseeable future. These estimates reflect the latest forecasts.
Lines Received and Shipped (Millions)
FY 2000
23.0
FY 2001
23.2
FY 2002
22.2
Storage:
In FY 1996, DLA implemented Discrete Pricing to allow, for the first time, the separate
recovery of the cost to store DoD materiel. This initiative charges inventory owners for the
storage of materiel based on occupied space in warehouses. Occupied cubic feet continues to
show declines, totaling 9.7% over the budget period, as a result of continued scrutiny of storage
data reports and due to initiatives to maximize use of commercial vendor stocks.
Average Cubic Footage Occupied (Millions)
Covered Storage Space
Open Storage Space
FY 2000
241.3
69.8
FY 2001
233.0
61.6
3
FY 2002
220.8
61.4
REVENUE:
Revenue for the Distribution Depots Activity Group consists of payments from the Supply
Management Activity Groups of the Military Services and DLA for lines received and shipped,
for storage space occupied, and reimbursable funding provided by inventory managers or local
activities to depots for special project work. Inventory Control Points in supply management
include their distribution depot costs in surcharges applied to sales of materiel that they manage.
Lines Received and Shipped:
The current rate structure includes a discrete pricing structure (a matrix of discrete prices for
lines received and shipped), a separate pricing structure for storage services and an hourly
reimbursable rate.
Discrete Pricing:
Lines Received and Shipped:
Receipts
Bin
Medium Bulk
Heavy Bulk/Hazardous
Issues On-Base:
Bin
Medium Bulk
Heavy Bulk/Hazardous
Issues Off-Base:
Bin
Medium Bulk
Heavy Bulk/Hazardous
Transshipments
Composite Rate (with transportation)
FY 2000
FY 2001
FY 2002
$24.55
38.59
63.29
$20.92
31.96
71.20
Net
13.95
31.10
57.34
11.27
23.50
44.15
17.18
38.49
88.88
5.25
16.84
33.98
113.20
6.24
$26.34
$24.36
Landed
Cost
(see below)
$26.12
This budget submission provides our customers, through the implementation of Net Landed
Cost (NLC) in FY 2002, greater visibility of their distribution costs by commodity, customer,
and transactions in order for them to make more informed supply decisions. Inventory Control
Points reimburse Distribution for lines received and shipped charges based on a discrete pricing
structure matrix. Current pricing methodology does not reflect the varying levels of distribution
services rendered. In an attempt to provide each customer greater visibility of their costs, the
following changes will occur under NLC:
(1) Transportation costs are not included in NLC rates. Customers will be billed the
actual transportation cost for each transaction. Linking actual transportation with
the customer’s bill will involve them in the decision process and will be a key
element in driving distribution costs to the proper levels. This is a significant
4
change from the current process where customers can make decisions that require
premium transportation without any direct financial impact on their costs.
(2) Receipts, Issues, Issues from Receiving, and Off-base Transshipments will include a
basic charge and will also incur a charge for extended weight of the line.
(3) Value Added Services – Returns, Hard to Handle, Hazardous, Controlled Items,
Foreign Military Sales, Out-of-Cycle, and Local Delivery items will incur additional
charges. These are services that are beyond the basic services, requiring additional
processing.
The following table outlines our rate schedule under Net Landed Cost:
5
Net Landed Cost Rates
FY02
Receipt
Base
$21.88
per line
Plus
1-40 lbs.
40-150 lbs.
150-2000 lbs.
2000+ lbs.
Return
Hazardous
Hard-to-Handle
$1.37
$8.41
$21.95
$0.0080
$3.87
$13.11
$13.11
per line
per line
per line
per lb.+ $21.95
per line additional
per line additional
per line additional
Issue
Onbase
$8.92
per line
Plus
1-40 lbs.
40-150 lbs.
150-2000 lbs.
2000+ lbs.
Offbase
Base
1-40 lbs.
40-150 lbs.
150-2000 lbs.
2000+ lbs.
Hazardous
Controlled Item
Hard-to-Handle
FMS
Out-of Cycle
LocalDelivery
$1.37
$8.41
$21.95
$0.0080
$13.00
$2.34
$18.69
$37.51
$0.0105
$13.11
$6.47
$13.11
$6.43
$17.60
$1.25
per line
per line
per line
per lb.+ $21.95
per line
per line
per line
per line
per lb.+ $37.51
per line additional
per line additional
per line additional
per line additional
per line additional
per line additional
Issue from Receiving
Base
Plus
1-40 lbs.
40-150 lbs.
150-2000 lbs.
2000+ lbs.
$1.17
per line
$1.37
$8.41
$21.95
$0.0080
per line
per line
per line
per lb. + $21.95
Transshipments
MarkFor
Onbase
Offbase
1-40 lbs.
40-150 lbs.
150-2000 lbs.
2000+ lbs.
$4.72
$8.61
$17.99
$2.34
$18.69
$37.51
$0.0105
Estimated Transportation
$151,856,200
Total Processing Costs
$585,600,000
Composite Rate with Transportation
Composite Rate w/o Transportation
per line
per line
per line
per line
per line
per line
per lb. + $37.51
$26.12
$19.18
6
Storage Rates. In FY 1999, we changed the unit measure from gross square feet occupied to
cubic feet of warehouse space occupied in order to better reflect the cost of storage and to give
our customers visibility of their occupied space and associated costs. As stated previously,
storage workload (cubic feet occupied) is decreasing faster than we can reduce our costs.
Because the workload is decreasing faster than costs, and in keeping with aligning costs where
costs belong, our unit cost for storage will increase. DLA is committed to reducing these costs
by getting material to the customer without storing or double handling of materiel.
The last two distribution depots affected by BRAC will close operations in FY 2001, leaving an
infrastructure still in excess of distribution depot requirements. Nine distribution depots have
been closed under the BRAC process. To the extent possible, we are continuing to vacate
warehouse buildings within the remaining distribution depots and returning them to
hosts/owners. Only through reduced inventory can we reduce our fixed costs – infrastructure –
and pass these savings to our customers.
Average Cost Per Cubic Foot
Covered Storage
Open Storage
FY 2000
$0.83
$0.17
FY 2001
$0.83
$0.17
FY 2002
$0.99
$0.20
Reimbursables. A nationwide reimbursable rate of $66.89 per direct labor hour was
established in FY 1998. In FY 1999 we realigned workload associated with Principal End
Items. In an effort to respond to our customers’ concerns with respect to one nationwide rate
and in keeping with aligning costs where costs belong, we have changed the pricing structure
for our Reimbursable work. We have realigned overhead costs and established two rates to
capture workload performed 1) at DLA facilities and 2) at customer facilities. We are
continuing to pursue a NLC pricing structure for reimbursable workload to provide more
visibility and cost control to our customers.
DLA Facilities
Non-DLA Facilities
FY 2000
$65.95
$52.55
FY 2001
$68.36
$52.55
FY 2002
$63.12
$52.55
Over-Ocean Transportation/Container Consolidation Point (OOT/CCP). We budgeted for
full recovery of Over-Ocean Transportation (OOT) and Container Consolidation Point (CCP)
costs. Transportation costs to Bosnia decreased from $30M in FY 2000 to $15M in FY 2002.
In anticipation of higher transportation costs as a result of fuel price escalation and a more
accurate realignment of overhead costs, FY 2002 OOT/CCP workload (excluding Bosnia), is
$42 million higher than reflected in last year’s President’s Budget.
7
Capital Investments:
The Capital Investment Program for distribution finances the reinvestment of the infrastructure
for this activity group. The Distribution Depot Activity Group submits the following
requirements:
($ in Millions)
FY 2000
FY 2001
FY 2002
Equipment (non-ADP)
$14.6
$16.6
$16.4
Equipment (ADP/T)
4.8
12.0
6.9
Software Development
2.9
5.9
3.8
Minor Construction
5.2
10.2
7.3
TOTAL
$27.5
$44.7
$34.4
The decrease in Automated Data Processing Equipment is a due to a reduction in the number of
depots that are scheduled for Local Area Network upgrades in FY 2002. Software development
investments are for System Change Requests (SCRs) for the Distribution Standard System
(DSS). Additional SCR’s were programmed for FY 2000 and FY 2001 for the mandated
migration from MILS (obsolete DoD unique EDI standard format) to the Defense Logistics
Management System (DLMS). FY 2002 Software Development reflects a reduction in
functional SCR costs. The fluctuation in the Minor Construction budget is due to a
reprogramming in FY 2000 from Minor Construction to Software Development for DSS. A
reprogramming in FY 2001 subsequently restored the Minor Construction. In FY 2002, the
Minor Construction budget returns to an average investment level of $7.3M.
Operating Result:
In the FY 2002 budget estimate, we have developed all distribution rates based on full cost
recovery. We anticipate achieving an Accumulated Operating Result of zero by FY 2002, and
therefore breaking even in the budget year. FY 2002 Other Changes Affecting Net Operating
Result reflects a requested direct appropriation of $0.7M for increased utilities costs. The
proposed rates are requested to meet only the total costs of current operations less a prior year
gain.
Net Operating Result/Accumulated Operating Result
($ in Millions)
Revenue
Expenses
Operating Result
Other Changes Affecting NOR
NOR
Prior year AOR
Non-Recoverable Adjustment
Impacting AOR
AOR
FY 2000
$1,309.8
$1,265.8
44.0
0.0
44.0
41.2
0.0
85.2
8
FY 2001
$1,265.7
FY 2002
$1,255.2
$1,324.3 $1,282.5
(58.6)
(27.3)
0.0
0.7
(58.6)
(26.6)
85.2
26.6
0.0
26.6
0.0
0.0
DEFENSE LOGISTICS AGENCY
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002 Amended Budget Submission
Changes in Cost of Operations
(Dollars in Millions)
EXPENSES
1,342.0
FY 00 Estimated Actual
FY 00 Actual:
1,294.2
Estimated Impact in FY 01 of Actual FY 00 Experience:
Depreciation
Personnel Costs
Supplies and Material
Transportation
Interfund Purchases
Other Services
Pricing Adjustments:
Annualization of FY 00 Pay Raise
FY 01 Pay Raise
General Purpose Inflation
Program Changes:
Personnel Costs
Travel
Transportation
Other Services
FY 01 Current Estimate
(24.4)
18.0
(3.2)
(7.6)
(3.2)
(28.6)
5.9
13.7
11.2
(37.2)
1.0
40.0
(3.3)
1,324.3
Exhibit Fund-2 Changes in the Costs of Operation
(page 1 of 3)
DEFENSE LOGISTICS AGENCY
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002 Amended Budget Submission
Changes in Cost of Operations
(Dollars in Millions)
EXPENSES
1,324.3
FY 01 Current Estimate
Pricing Adjustments:
Annualization of FY 01 Pay Raise
FY 02 Civilian Personnel Pay Raise
General Purpose Inflation
Program Changes:
Personnel Costs
Material & Supplies
Travel and Transportation of Personnel
Transportation of Things
Depreciation
Other Purchases from Revolving Funds
Other Purchased Services
Military Personnel
Interfund Purchases
FY 02 Estimate
4.2
12.2
12.4
(16.3)
(3.7)
(0.7)
(14.9)
4.1
(4.7)
(27.9)
0.8
(7.3)
1,282.5
Exhibit Fund-2 Changes in the Costs of Operatio
(page 2 of 3)
DEFENSE LOGISTICS AGENCY
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002/2003 Budget Estimates
Changes in Cost of Operations
(Dollars in Millions)
EXPENSES
1,288.1
FY 02 Current Estimate
Pricing Adjustments:
Annualization of FY 02 Pay Raise
FY 03 Civilian Personnel Pay Raise
General Purpose Inflation
Program Changes:
Personnel Costs
Transportation of Things
Depreciation
Other Purchased Services
Materials and Supplies
Travel and Transportation of Personnel
Other Purchases from Revolving Funds
FY 03 Estimate
4.2
10.4
11.8
(23.3)
(11.1)
(7.3)
(1.8)
(0.9)
0.2
0.3
1,270.6
Exhibit Fund-2 Changes in the Costs of Operatio
(page 3 of 3)
Defense Logistics Agency
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002 Amended Budget Submission
Source of New Orders and Revenue
(Dollars in Millions)
FY 00
FY 01
FY 02
1. New Orders
a. Orders from DoD Components:
54.1
55.9
50.1
7.5
22.7
0.0
12.6
0.0
0.0
11.3
16.0
21.8
0.0
1.7
0.0
0.0
16.4
3.0
26.5
0.0
0.0
0.0
4.2
16.3
1,255.8
1,209.8
1,205.2
653.8
220.3
146.3
228.7
6.7
615.2
216.7
158.6
213.7
5.5
627.4
226.2
146.5
199.3
5.7
1,309.8
1,265.7
1,255.2
0.0
0.0
0.0
0.0
0.0
0.0
1,309.8
1,265.7
1,255.2
4. Funded Carry-over
0.0
0.0
0.0
5. Total Gross Sales
1,309.8
1,265.7
1,255.2
Other Services (Appropriated)
DLA
Army
Navy
Air Force
Marine Corps
DERA
DDMA
b. Orders from Other Working Capital
Fund Activity Groups:
DLA
Army
Navy
Air Force
Marine Corps
c. Total DoD:
d. Other Orders:
Other Federal Agencies
Trust Fund
Non Federal Agencies
Foreign Military Sales
2. Carry-In Orders
3. Total Gross Orders
Exhibit Fund-11 Source of New Orders & Revenue
Defense Logistics Agency
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002 Amended Budget Submission
Revenue and Expenses
(Dollars in Millions)
FY 00
Revenue:
Gross Sales
Operations
Capital Surcharge
Depreciation excluding Maj Const
Other Income
Total Income:
Expenses:
Cost of Material Sold from Inventory
Salaries and Wages:
Military Personnel
Civilian Personnel
Travel & Transportation of Personnel
Materials & Supplies (for Internal Operations)
Equipment
Other Purchased Services from Revolving Funds
Transportation of Things
Depreciation-Capital
Printing and Reproduction
Advisory and Assistance Services
Rent, Communication, Utilities, & Misc. Charges
Other Purchased Services
Total Expenses
Operating Result
Less Capital Surcharge Reservation
Plus Appropriations Affecting NOR/AOR
Other Changes Affecting NOR/AOR*
FY 01
FY 02
0.0
1,272.6
0.0
37.2
0.0
1,219.2
0.0
46.5
0.0
1,204.6
0.0
50.6
1,309.8
1,265.7
1,255.2
0.0
0.0
0.0
9.2
515.6
7.5
51.6
0.8
94.5
387.1
37.2
1.5
0.4
9.9
150.5
10.7
470.1
8.8
32.8
1.8
58.5
431.4
46.5
2.3
2.3
8.7
250.4
11.4
470.3
8.2
28.7
1.7
54.7
423.3
50.6
2.2
2.1
9.4
219.9
1,265.8
1,324.3
1,282.5
44.0
0.0
0.0
0.0
(58.6)
0.0
0.0
0.0
Net Operating Result
44.0
(58.6)
Prior Year AOR
Accumulated Operating Result
Non-Recoverable Adjustment Impacting AOR
Accumulated Operating Results for Budget Purposes
41.2
85.2
0.0
85.2
85.2
26.6
0.0
26.6
Exhibit Fund-14 Revenue and Expenses
(27.3)
0.0
0.7
0.0
(26.6)
26.6
(0.0)
0.0
(0.0)
DEFENSE LOGISTICS AGENCY
Defense-Wide Working Capital Fund
Distribution Depots Activity Group
FY 2002 Amended Budget Submission
International Travel
Component:
Distribution Depots
Point of contact:
Date:
David Salamone/767-7263
June 2001
FY 2000
Total obligations ($ in millions):
Total number of individuals:
$0.5
153
PB-56 International Travel